tax calculation - can anyone help?

I wonder if someone can cast their eye on these calculations just to see if I have missed anything. I am trying to work out how much tax my franchisees might have to pay out (so that I can pre-warn them)

Ok, this scenario is totally made up, but lets assume the franchisee is a sole trader with no other source of income.

Annual Income £10,000
Outgoings £4000 (all expenses such as advertising, insurance, licence fees, petrol etc etc)

Personal Tax Allowance ? £4895.00.
I'm assuming here that to calculate their tax liability they should deduct their tax allowance from income then deduct expenses and pay tax on the remaining?

EG 10,000 - 4895 - 4000 = £1195, so would they just pay tax on the £1195?

Apologies for such a basic question, but just when I think I have it sorted, i get all confused again!

Also, just to add, I sincrely hope my franchisees have a much bigger income then the one stated above, but i'm just tying to stick with easy numbers :roll:

Claire x

 

[Pebble Communications]

No, you take off expenses first then work out you liability on the profits.

 

[Pebble Communications]

You need to get the information for prospective franchisees 100% accurate or be open to legal action in future. I can recommend someone to help - PM on the way.

 

[Joyous]

Almost, I assume you meant £1,105 and not £1,195. That’s more or less it although an accountant would use a different route to come up with the same figure, ie:

Income…………….10,000
Expenses…………..(4,000)
Profit………...……..6,000
Less PA’s………….(4,895)
Taxable profit………1,105


Note the personal allowance will be going up to £5,035 in a couple of weeks. Also the above assumes that the individual is not employed, i.e. doesn’t have another job. If he has the personal allowances will be used up when calculating his PAYE and tax will be payable on the full £6,000. Also don’t forget about Class 4 national insurance. Using the figures you’ve supplied no NI is payable as the profits are too low, However once profits are in excess of £5,035 NI is payable at 8% for profits up to £33,540 and then at 1% above that.

I bet you’re sorry you asked now.

Regards

Joy

 

[Alpha]

I bet you’re sorry you asked now.

Oh and don't forget Capital Allowances

I 'd better stay out of this and leave it to Joy

 

[dcaccounting]

Joy may have missed this post now...

Capital allowances are in place of depreciation, and are based on your capitalised expenditure - assets.

If you buy a machine for say £10,000 this cost wont be an allowable p&l deduction and the machine will be capitalised.

You can claim a proportion of the cost against your taxable profits. The a couple of different percentages but the mains ones' being:

First Years Allowance - large business 40% small business 50%

Written Down Value - 25%

I think i see now why the reply post was left :wink:... not the easiest thing to explain is it

Regards

Dean